Shares of Wipro continued their upward trajectory for the third consecutive trading session on Monday, rallying nearly 2.6% to ₹415.40 apiece. So far in the current month, the shares have performed decently, delivering a return of 6.75%.
However, looking at the long-term performance, the shares have been under pressure for the last 19 months. After recording an all-time high of ₹726 apiece during January 2022, the shares witnessed selling pressure, resulting in a 43% drop in value to date.
Looking ahead, the stock is expected to face further downward pressure based on projections provided by brokerage firm ICICI Securities. This outlook came after the company's Q1FY24 performance.
"Wipro’s Q1FY24 performance missed estimates on all fronts: EBIT missed our and Bloomberg estimates by 6%/4%, order book was weak (down 10% QoQ), and QoQ revenue growth guidance for Q2FY24 at -2% to +1% falls short of our expectation of 0-2% growth," said the brokerage firm.
Based on the recently announced results of ACN, TCS, HCL, and Wipro (both ACN and Wipro’s guidance for the next quarter at mid-point are indicating a further decline in revenues) and from demand commentary, it is evident that the companies aren’t seeing any immediate demand revival in Q2FY24 and that the visibility of recovery in H2FY24 too is limited at this stage.
This situation may be attributed to the cancellation or downsising of multiple low-return-on-investment discretionary projects executed over the past two years now getting cancelled or seeing ramp-downs amid adverse macro conditions, particularly in banking, retail, hi-tech, and telecom verticals, which have contributed to this challenging scenario, it noted.
“Lack of visibility around the revival of these projects is dissuading company managements from guiding for a strong recovery in H2FY24, in our view, despite decent order booking momentum, particularly in the case of our 'buy'-rated TCS,” said ICICI Securities.
In the case of Wipro, the brokerage trimmed its EPS estimates sharply by 11%, 9%, and 7% over FY24E, FY25E, and FY26E due to weaker revenue growth, lower margins, and higher tax rates. This leads to brokerages' revised 12-month target price of ₹319, implying 23% potential downside.
The brokerage also downgraded the rating on the stock to 'sell' from 'reduce', and it believes that the FCF yield of 4.7% in FY25E may not be sufficient to justify a 2.4x PEG multiple where Wipro is currently trading at 17.2x FY25E for FY23-FY26E EPS CAGR of 7%.
While another brokerage firm, KR Choksey, has a 'buy' rating on the stock, as it has stated that the stock is currently trading at a valuation with a P/E multiple of 18.4x/15.8x on FY24E and FY25E earnings.
Wipro is winning large transformation deals, benefiting from a consolidating market, and deepening relationships with existing clients. Considering this, the brokerage has assigned a P/E multiple of 19x to the FY25 estimated EPS of ₹25.6 to arrive at a revised target price of ₹486 apiece. This new revised target price indicates an upside of 17% from the stock's previous closing price.
40 analysts polled by MintGenie on average have a 'hold' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.